Did Apple Inc. Just Reveal Its Next Big Thing?

Let's hope the tech giant has a plan, because mobile payment could very well be Apple's next big thing.

Stay Connected

Last week's earnings report was a bruiser for Apple Inc. (NASDAQ:AAPL). iPhone sales disappointed, the outlook for the current quarter was gloomy, and unit prices continued their long fall as consumers embraced older, cheaper models. These trends aren't surprising, or even new, but the quarterly conference call had an air of frustration as one analyst asked CEO Tim Cook, "Are you still a growth company?"

"We are seeing that people love being able to buy content, whether it's music or movies or books, from their iPhone using Touch ID. It's incredibly simple and easy and elegant and it's clear there's a lot of opportunity there. The mobile payment area in general is one that we've been intrigued with. That was one of the thoughts behind Touch ID."

This statement seems to confirm two recent news items. Several weeks ago, the Wall Street Journal reported that Apple is working on a mobile payment platform, and in mid-January the company filed a patent for a wireless payment method. The evidence seems to be pointing toward Cupertino's next big jump -- and let's hope the evidence is right.

The mobile payment industry needs a savior. Near field communication (NFC) was supposed to be the future of commerce; the idea was that consumers could walk into a store, grab what they wanted, tap their smartphone against the counter, and be off. Last year, however, Gartner slashed its forecast for the NFC payments market by 40%, due to underwhelming -- make that virtually nonexistent -- transaction volumes.

The disaster has been so complete that Google (NASDAQ:GOOG) Wallet, introduced with fanfare in 2011, has now devolved into a Google-branded debit card. That you swipe -- as in, physically. AT&T (NYSE:T), Verizon (NYSE:VZ), and T-Mobile (NYSE:TMUS) came out with their own mobile payment platform, called Isis, in 2010. It took them three years just to get past trials.

Perhaps the biggest hang-up has been the lack of integration. Google has difficulty convincing phone makers like Samsung (OTCMKTS:SSNLF) to adopt new versions of Android, much less security features like fingerprint sensors, which are expensive. Cellphone carriers don't know the first thing about smartphone software, so Isis is basically a piece of hardware tacked onto a handset. These piecemeal approaches come at a cost to usability and security, and make mobile payment more trouble than it's worth.

That brings us to a second problem: As it stands, paying by phone isn't all that convenient. NFC requires that you rub your mobile device against a cash register. Sound like fun? PayPal (NASDAQ:EBAY) gets around this by using Bluetooth LE, so in theory your phone can stay in your pocket. But for PayPal's Beacon service to work, businesses have to install the company's hardware, and customers need both a PayPal account and the PayPal mobile app. Beacon also relies on verbal confirmation, probably because forcing everyone to open the PayPal app would have been a deal-killer. This means that a store clerk has to compare your face to a photo on the screen -- a failsafe security protocol, no doubt -- and that you'll still be waiting in line, just like everybody else.

With the possible exception of Microsoft (NASDAQ:MSFT), Apple is the only company wide enough to make mobile payment work. By the end of next year, Touch ID should be standard on all current-model iPhones, allowing for a quick and safe way to authenticate purchases. If Apple does integrate a mobile payment system into iOS, it will have the benefit of a quick adoption rate. Transactions can be processed securely in the cloud through the iTunes store, and the company already has a presence in the merchant sector, with iPads commonly being positioned as point-of-sale machines. Cupertino still controls 40% of the North American smartphone market, and it can leverage that market share quickly and effectively.

Apple may also be the only company capable of convincing everyone that mobile payment is worth it. Many of the benefits aren't obvious -- for instance, the ability to track purchases and sync with accounting software. Or to consolidate gift certificates and coupons, and optimize credit card rewards. Or to avoid the card readers at Target (NYSE:TGT).

Retailers and restaurants would probably find other uses that we can't yet imagine. With an integrated and secure platform, many things become possible. Like the original iPhone, mobile payment is a potentiality; it won't be great until everyone has bought in. How many companies could make that kind of sales pitch with any hope of success?

The payoff for Apple would be huge. Aside from providing a new business for the iTunes store, iPay -- or whatever it's called -- would give some much-needed momentum to the iPhone in major markets like the US and Japan. There's no stopping Android at this point, but maybe it can be slowed down a little.

As always there are challenges. AT&T and the other cell carriers might play hardball like they did with Google Wallet. Apple will have to pitch its new product to businesses and not simply rely on its strength with consumers. What's most worrying is the offhanded approach taken by Apple's management. If mobile payment was "one of the thoughts behind Touch ID," then why doesn't the iPhone 5S come with NFC? And if the answer is that Apple is committed to Bluetooth LE instead, then why did it just patent a mobile payment method that incorporates -- you guessed it -- NFC?

Let's hope there's a plan here, because mobile payment could very well be Apple's next big thing.